USD/CAD Price Analysis – Aug 20, 2024
Daily Price Outlook
During the European trading session, the USD/CAD currency pair staged a modest recovery from a one-month low, holding around the 1.3625 level.
The rebound can be attributed to a mix of factors including a decline in Crude Oil prices and a modest recovery in the US dollar.
Despite the bounce, the pair remains below the mid-1.3600s as traders adopt a cautious approach ahead of crucial Canadian inflation data.
Impact of Crude Oil Price Decline and Canadian Inflation Data on USD/CAD Pair
Crude Oil prices have been on a downward trend, largely due to optimism surrounding a potential ceasefire in Gaza, which has reduced the risk premium associated with oil prices.
As Crude Oil prices decline, the Canadian Dollar, which is closely tied to oil exports, has weakened.
This decline in oil prices, coupled with expectations of a lower headline Canadian Consumer Price Index (CPI), is influencing the USD/CAD pair.
The Canadian CPI is anticipated to show a decrease for the second consecutive month, signaling a slowdown in inflation.
This could lead the Bank of Canada (BoC) to adopt a more accommodative policy stance, potentially easing monetary policy in response to weak inflation and a slack labor market. Such a scenario would likely weigh on the CAD, bolstering the USD/CAD pair.
Impact of US Dollar Strength and Fed Policy on USD/CAD Pair
On the US side, the dollar has shown a modest recovery from its lowest level since January. This recovery is partly due to a general rebound in the US dollar amid reduced risk aversion and market optimism.
However, the upside for the Greenback remains limited as markets anticipate the Federal Reserve (Fed) might start its rate-cutting cycle in September.
Federal Reserve Chair Jerome Powell's forthcoming speech at the Jackson Hole Symposium and the release of the July FOMC meeting minutes are expected to provide further guidance on the Fed's policy trajectory.
Market sentiment currently reflects an 85.7% probability of a 25-basis point rate cut in September, up from previous expectations. This outlook could cap gains for the USD, even as it provides support to the USD/CAD pair against a weakening CAD.
Therefore, the recent decline in Crude Oil prices and anticipated Canadian inflation data are likely to strengthen the USD/CAD pair.
Meanwhile, the US dollar's modest recovery and expectations of Fed rate cuts are also influencing the USD/CAD pair, although further gains may be capped by the Fed's anticipated policy adjustments.
USD/CAD - Technical Analysis
USD/CAD is trading at $1.36189, holding steady with no significant movement. The pair is currently hovering near the pivot point at $1.3643, a critical level that could determine the next direction.
Immediate resistance is at $1.3679, with further resistance at $1.3710 and $1.3739. On the downside, key support levels to watch are $1.3603, followed by $1.3572 and $1.3544.
The Relative Strength Index (RSI) is at 23, indicating that the pair is in oversold territory, which could suggest a potential bounce or limited downside movement.
The 50-day Exponential Moving Average (EMA) is positioned at $1.3712, suggesting that the overall trend is bearish.
Given the current technical setup, USD/CAD appears to be under selling pressure, especially if it breaks below the $1.3643 pivot point.
A move below this level could trigger further downside toward the $1.3603 support and potentially lower.
However, if the pair manages to break above $1.3643, we could see a test of the immediate resistance at $1.3679.
Conclusion: The recommended strategy is to sell below $1.36430, with a target of $1.35837 and a stop loss at $1.36789.
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